SPD4198 Global Supply Chain Management
Lecture 7: Strategic Alliance and Outsourcing
SPEED, HK Polytechnic University
Strategic Alliance and Outsourcing
Barilla SpA Part A Strategic Partnership
Barilla Spa Part A
Barilla SpA is the world’s largest pasta manufacturer The company sells to a wide range of Italian retailers, primarily through third party distributors During the late 1980s, Barilla suffered increasing operational inefficiencies and cost penalties that resulted from large week-to-week variations in its distributors’ order patterns
Barilla Distribution Patterns
Barilla Dry Product Factories 65% TL 10% TL 35% TL 18 Barilla-Run Depots
Under the proposed JITD system, decisionmaking authority for determining shipments from Barilla to a distributor would transfer from the distributor to Barilla. Specifically, rather than simply filling orders specified by the distributor, Barilla would monitor the flow of its product through the distributor’s warehouse, and then decide what to ship to the distributor and when to ship it.
Evaluation of the JITD Proposal
Clearly the variation in demand is imposing additional costs on the channel. What do you think of the JITD proposal as a mechanism for reducing these costs? Why should this work? How does it work? What makes Barilla think that it can do a better job of determining a good product/delivery sequence than its distributors?
Two Key Concepts Behind JITD Replace Sequential optimization with Joint optimization
Who will optimize?
Eliminate some of the ‘false economics that drive traditional ordering processes
Implementation Issues: Resistance from the Distributors “Managing stock is my job; I don’t need you to see my warehouse or my figures.” “I could improve my inventory and service level myself if you would deliver my orders more quickly; I would place my order and you would deliver within 36 hours.” “We would be giving Barilla the power to push products into our warehouse just so that Barilla can reduce its costs.”
Implementation Issues: Resistance from Sales and Marketing
“Our sales levels would flatten if we put this program in place.” “How can we get the trade to push Barilla product to retailers if we don’t offer some sort of incentive?” “If space is freed up in our distributors’ warehouses … the distributors would then push our competitors’ product more than ours.” “… the distribution organization is not yet ready to handle such a sophisticated relationship.”
How Can Maggiali Solve the Implementation Problems? Demonstrate that JITD benefits the distributors (lowering inventory, improving their service levels and increasing their returns on assets); Run experiment at one or more of Barilla’s 18 depots Maggiali needs to look at JITD not as a logistics program, but as a company-wide effort; Get top management closely involved Trust
Activity 1 How do you evaluate the implementation process Barilla used with Cortese?
Types of SP:
Quick Response: Vendors receive POS data from retailers, and use this information to synchronize production and inventory activities at the supplier. In this strategy, the retailer still prepares individual orders, but the POS data is used by the supplier to
improve forecasting and scheduling.
Milliken and Company: The lead time from order receipt at Milliken’s textile plants to final clothing receipt at several of the department stores involved was reduced from eighteen weeks down to three weeks.
Continuous Replenishment: Vendors receive POS data and use it prepare shipments at previously...